‘Central banks looking at Bitcoin as real threat to dominance’

Governments and banking officials are watching Bitcoin in fear of losing their leading position to the virtual currency and the infrastructure building around it, Arwa Mahdawi, consultant, journalist and Bitcoin employee, told RT.

US Immigration and Customs Enforcement confirmed that there was
an “ongoing investigation” that followed the blocking of the
account of Dwolla, a business that allows users to convert U.S
dollars into BitCoin and back again.

According to the Department of Homeland Security in the US, the
peer-to-peer currency violates new laws that require online
transfer systems to identify its users.

“The shutdown of Mt.Gox is a little bit worrying, it looks as
if the US government wants to put a stranglehold on the kind of
business that’s popping up around Bitcoin, but, crucially, it
doesn’t affect much the currency itself. It’s just the exchanges
around it and the US exchanges. And by the nature of it, Bitcoin
being an international currency, shutting down an exchange like Mt.
Gox, even if it affects the liquidity of Bitcoin, can’t kill
Bitcoin.”

What’s more, the idea of rivalry between Bitcoin and regular
currency is a relatively new phenomenon, as Mahdawi indicated.

“Central banks around the world are looking at the
development of Bitcoin with a lot of fear, and not just central
banks, but the traditional banking as a whole. If you think about
it, Bitcoin has been around since 2008, it’s been around for ages.
The regulators didn’t pay any attention to it whatsoever, they
dismissed it as sort of monopoly money.”

According to Mahdawi, just in the past few months, Bitcoin has
really gained legitimacy, we saw the huge spike in terms of its
value, we’re seeing investors pour money into Bitcoin.

“A couple of weeks ago, Union Square Ventures, a very
credible investment group, spent $5 million investing in Coinbase,
which is sort of a PayPal for Bitcoin. A lot of infrastructures are
building around Bitcoin, and that’s why the [Federal Reserve] is
looking at it as a real threat to its dominance,” she
said.

The virtual currency leads to people re-assessing the value and
the meaning of money, Mahdawi stressed.

“The interesting thing about Bitcoin is that it’s made
everybody start to talk about what money is, and why money has any
value. If you think about it, since 1971, when the US came off the
gold standard, the dollar hasn’t been linked to gold, it hasn’t
been linked to anything. You have a piece of paper which says ‘In
God we trust’ on it, but it isn’t the government we trust. That
piece of paper is absolutely meaningless. You’re putting your trust
into banks and central authorities. Bitcoin is a whole new idea of
money when the money is basically regulated by network and by
people.

Mahdawi believes that with people losing trust in governments,
the idea of something like Bitcoin is really gaining in popularity,
and people are beginning to realize that dollars are no more real
as a currency than something like Bitcoin and they are starting to
re-assess what the future of money is.

“Bitcoin isn’t going to wipe the dollar off the face of the
Earth in the next few years, but I think we’re going to see the
emergence of the alternative currencies in a world where traders
buy through the internet, in a borderless world with the internet,
so the idea of sovereign currency is starting to make less and less
sense,” she said.

Mahdawi suggests that Bitcoin could represent a new path in the
history of currencies.

“We’ve been in the recession now for several year, the
eurozone crisis…People are starting to realize that the government
isn’t the best people to put their money to, the government isn’t
necessarily going to protect their money for them. So something
like Bitcoin represents a call for alternative, [an idea] that you
might be better off putting your money in technology rather than in
the government. We’re seeing lots of governments beginning to
scratch their heads and think about ways they could regulate
Bitcoin, think about what things like Bitcoin means to them. Last
October, the European Central Bank produced a paper on virtual
currencies, and that was the first time that a public institution
had produced any kind of meaningful document that looked at virtual
currencies.”

The journalist notes that if you look at the bibliography of
that document “you will find that the European Central Bank is
looking at Wikipedia articles, at Mashable articles trying to find
out what on Earth the virtual currency means for them.”

“This week, in the UK, a lot of government officials and
people involved in financial regulation got together to start
thinking about what Bitcoin means for them. All over the world, the
governments are starting to take note and kind of wonder what the
future of money means, and how that’s going to affect their
dominance,” Mahdawi added.